Susan Jensch has been socking away money in a 401(k) since she graduated from college and investing in stocks since her mid-20s. Her saving habits are worthy of a gold star, but to her, the most exciting part is the impact her money is making in the world.
Jensch wants to advance women and help the planet, so she invests in the SHE ETF SHE, +0.19% , which buys shares of companies with a higher percentage of women on their boards or in C-suites, and Parnassus Endeavor Fund PARWX, -0.31% , a mutual fund whose portfolio companies all have “outstanding workplaces” and don’t make money from fossil fuels.
Susan Jensch Susan Jensch, 30, uses her investments to support corporate board diversity and environmentally-conscious companies.
“Millennials feel like this is a tangible thing they can do to create change because money speaks volumes,” Jensch told MarketWatch. “As millennials start to get money and start to get out of debt, we do have money and we can make an impact.”
The 30-year-old Minneapolis financial consultant is typical among her generation: Some 60% of millennials think making socially responsible investments is important, compared to 36% of baby boomers, a survey released last week from TD Ameritrade AMTD, +0.11% found. The brokerage firm interviewed 1,056 American adults of all ages who had at least $250,000 to invest, so the sample only represents affluent investors.
TD Ameritrade conducted the survey to better understand investor sentiment in advance of launching new ESG portfolios for its robo-adviser clients.
Most of the millennials surveyed (60%) had at least 21% of their money in ESG investments — investments that promote environmental, social or governance goals — compared to 49% of Generation X and 45% of boomers.
Millennials and boomers take a different approach
Interest in ESG investing is growing, especially among affluent younger investors. Nearly four in 10 (37%) of high net worth investors have reviewed their investment portfolios for ESG impact, up from 34% in 2017 and 23% in 2015, a 2018 study by Bank of America’s wealth management division, U.S. Trust, found. The biggest one-year increase (+14%) was driven by millennials.
“It’s no secret that it’s a generation that’s driven by purpose,” said Lule Demmissie, managing director of investment products and guidance at TD Ameritrade.
Demmissie noticed subtle generational differences in the survey results. Millennial investors who are interested in socially responsible investing preferred to make “proactive” investments, she said. They wanted to invest in companies that are actively striving toward social change through concrete actions like cultivating diverse boards.
Boomers, on the other hand, expressed their desire for socially responsible investment by screening certain sectors out of their portfolios, like fossil fuels or weapons manufacturing, and including others sectors, like clean energy — but not because those companies necessarily operate in a certain way.
“There’s definitely a generational divide,” Demmissie said. “For millennials it was about making an impact. If you looked at the boomers, it was more about, ‘Did it align with my values?’”
Of course, investors who want their investments to support social causes should be aware that there’s no official definition — from financial regulators or elsewhere — of what constitutes a socially responsible investment. Some fund managers have renamed certain funds to include terms like “sustainable” to capitalize on investors’ growing interest, but as Fidelity noted earlier this year, “just because an investment is defined as ESG, that doesn’t mean it meets your definition or requirements.”
“I’ve gone to marches and rallies, but I don’t think that’s the way I’m going to create change.”
Putting their money to work
Millennials — who are now in their early 20s to late 30s — came of age during the financial crisis and many are skittish about investing.
But as they finally begin to shed their considerable student-loan debt and inch toward their peak earning years, there’s been an increase in the number who have $100,000 or more saved. They’re looking for ways to put their money to work for social change.
Jensch has nothing against traditional forms of protest, but feels like making socially responsible investments could be more effective in the long-run.
“They feel like it’s making a difference more than just posting on Facebook FB, +1.07% about something,” she said of her fellow millennials. “I’ve gone to marches and rallies, but I don’t think that’s the way I’m going to create change.”
Millennials lag behind other age groups when it comes to donating money to charities, but that’s because they tend to see their entire life as geared toward supporting causes they believe in, from the jobs they take to the products they buy, Una Osili, the associate dean for research and international programs at Indiana University’s Lilly Family School of Philanthropy, told MarketWatch in June.
See also: How investors are abolishing ICE — in their portfolios
Returns vs. social value
A 2015 Deutsche Bank analysis of more than 2,000 studies found that ethical investing doesn’t hurt returns. And while ESG funds performed well during market volatility earlier this year, some have lagged in recent months.
But performance isn’t the top priority for all investors. Among investors of all ages in the TD Ameritrade survey, most (67%) said they cared more about advancing social and environmental causes than the return rate, which was a priority for 17% of respondents.
Among millennial investors, 21.7% said the most important factor when making socially responsible investments was the goals of the companies they’re investing in, while 14.4% said the most important factor was the rate of return, the survey found. Of all the generations surveyed, Generation X cared most about the rate of return: 28% of investors that age said returns were the most important factor.
“I’d rather take a smaller return than profit from companies I don’t believe in morally,” Jensch told MarketWatch.
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